3 simple steps to retire with a million-dollar ASX share portfolio

Compounding could be one of the keys to helping you retire rich.

| More on:
Woman holding $50 and $20 notes.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Retiring with a million-dollar ASX share portfolio is a goal for many investors. And while it might seem out of reach when you first start investing, it certainly is achievable.

Key to realising this goal is starting to invest as early as possible to allow the power of compounding to work its magic and boost your long-term returns.

In addition, by investing through market downturns like we are experiencing currently, it may be possible to enhance your returns due to obtaining a more favourable risk/reward ratio.

And finally, by narrowing your focus on companies with strong business models and sustainable competitive advantages, you really could supercharge your returns.

Starting today

Investing in ASX shares as early as possible would be a smart move. That's because compounding becomes more powerful the longer you are able to leverage it.

For example, a 10% return will turn $10,000 into $11,000 in one year. That's a $1,000 return on your original investment after 12 months. But 10 years of this return will turn your $10,000 into approximately $26,000. That's a $16,000 return after a decade.

If we then fast forward to the 30-year mark, you will see the power of compounding unleashed. At that point, your ASX share portfolio would be worth almost $110,000.

And if you can add to your holdings with regular investments, your ASX share portfolio would become even larger if you could achieve that 10% return. For instance, starting with $10,000 and adding $6,000 per annum to your portfolio would turn into $1.25 million in 30 years.

Invest through downturns

While market downturns are hard to take for investors, they could also be seen as an opportunity. History shows that a bear market has always been followed by a bull market.

So, by buying high-quality companies when they have been dragged lower during a downturn, you could position your portfolio to outperform when the tide eventually turns.

Focusing on quality ASX shares

In terms of where to invest, a focus on companies with strong business models and sustainable competitive advantages could be the way to go.

This has been a strategy that Warren Buffett has followed over multiple decades. And with the Oracle of Omaha delivering an average return of 19.8% per annum for his Berkshire Hathaway (NYSE: BRK.B) business since 1965, it is hard to argue against this strategy.

All in all, by combining the three steps, it is possible that investors could achieve the dream of a million-dollar ASX share portfolio at retirement.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway. The Motley Fool Australia has recommended Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on How to invest

Smiling woman with her head and arm on a desk holding $100 notes out, symbolising dividends.
How to invest

$7,500 of savings? Here's how I'd turn that into $2,000 a month of ASX passive income!

Want to generate passive income? Here's how you can do it.

Read more »

Men standing together and defending the goal post symbolising defensive shares.
How to invest

Is your ASX share portfolio 'positioned too defensively'?

Being too defensive can cost you in the long run...

Read more »

A young cool man sits in a private jet wearing headphones and casual clothing.
How to invest

My ASX tips: How to become an Aussie millionaire

Stocks can be the ticket to wealth.

Read more »

a man sits on a ridge high above a large city full of high rise buildings as though he is thinking, contemplating the vista below.
How to invest

Why I just sold my biggest ASX stock holding

It's not always about money and the best returns. You need to be able to live with your investment decisions.

Read more »

A young man goes over his finances and investment portfolio at home.
How to invest

How to exploit the ASX's current weakness for long-term gain

Market weakness doesn't need to be the enemy. It can be your best friend.

Read more »

a man in a business suit sits happily leaning back into his hands behind his head with his feet on his desk and smiles broadly.
How to invest

2 things I'm doing to prepare for a 2024 stock market crash

Will the market crash in 2024? Here's why it doesn't matter to me.

Read more »

a smiling picture of legendary US investment guru Warren Buffett.
How to invest

No savings at 40? I'd use the Warren Buffett method to build wealth with ASX shares

Following Buffett's lead could make you a millionaire in the future.

Read more »

Man holding out Australian dollar notes, symbolising dividends.
How to invest

I'd drip feed $200 a month into an ASX share portfolio to target a $20,000 second income

Compounding helps supercharge your portfolio, particularly the longer you leave it.

Read more »